Though
many Americans aren’t feeling it, the economy is quietly gathering forward
momentum. With consumers gaining in confidence and real estate heating up
on both the commercial and residential levels, the U.S. economy is much
stronger than it may seem at first glance.

One reflection of the strengthening economy is the equity market, which is in
the eighth year of a bull market since the bottom of the credit crash. The
bromide, “As goes the stock market, so goes the economy,” is something that
hardly needs explaining, yet so many investors lose sight of this cogent fact
that it bears repeating. Rising corporate profits and efficiencies in
recent years have contributed in large part to the economic improvement.

Another reflection of the recovery can be seen in our in-house New Economy Index
(NEI), which combines the stock prices of the leading U.S. retail and business
service stocks. The graph below shows that NEI continues to hit all-time highs
on almost a weekly basis and as such is reflecting a strong consumer retail economy.

With so many indicators pointing to a strong economy, why then are so many
Americans acting as if recession is imminent? That’s the question we’ll
address here.

Ed Hyman is one of the most respected, and accurate, economists. As
Barron’s recent observed, he has been voted Wall Street’s top economist for 36
of the past 41 years in Institutional Investor’s annual poll.

In an interview conducted by Barron’s editor Randall Forsyth, Hyman said he
sees cities around the U.S. “booming,” including smaller ones away from the
megalopolises on the coasts. His conclusion is that this will benefit Main
Street more than Wall Street.

Hyman has a rather old-fashioned, yet highly effective, method of gathering
data from which to make his forecasts. His team of researchers simply
contact companies such as employment agencies, truckers, car dealerships and
home builders and ask, “How’s business?” A rating scale of zero to 100 is
used by respondents to describe business conditions and from this tally Mr.
Hyman is able to get a good read on what’s happening in the economy.

According to Barron’s, Hyman’s surveys were trending higher well ahead of last
year’s election. “At that time,” quoting the Barron’s article, “his
model was forecasting real growth in gross domestic product of about 1.5%,
although not as ‘uplifting’ as the recent ‘soft data,’ such as confidence
surveys, indicate. Now, the model points to 3% growth, bolstered by
indicators such as tight credit spreads and high consumer net worth, which accords
with what he calls a ‘scientific method.’”

Ad Ed travels around the country, he’s finding that “every place is booming,”
he told Barron’s. “Every major city, Chicago, Minneapolis, Kansas City,
they’re doing great.” Smaller cities are also outperforming, he says.

Hyman also reports that “millennials are coming on like locusts,” as they
emerge from years of living in their parents’ basements. “They’re getting
jobs and apartments,” he told Barron’s. “Millennials’ employment is
growing at 3% while everything else is growing 1%.”

Hyman also pointed out that many observers have undervaued the extent to which
central banks around the globe “are still flooding the system every week” with
liquidity, with the Bank of England and the ECB having purchased more than two
trillion euros’ ($2.14 trillion) worth of bonds in less than three years.
Meanwhile the BOJ and the Federal Reserve, along with the ECB, hold $13
trillion in assets, which has lowered interest rates around the globe.
This, he says, explains how the Fed funds rate at just 0.80% while U.S.
companies are doing so well.

If Hyman’s macro optimism is to be believed – and our indicators strongly
suggest he is right – then 2017 may prove to be the year that the U.S. economy
finally takes off and leaves investors with no doubts as to its latent strength
and momentum.